Vol 1 - Part 6 - Chapter 2000 CASH ADVANCES UNDER FEDERAL GRANT AND OTHER PROGRAMS Section 2010 - SCOPE AND APPLICABILITY This chapter prescribes the procedures to be ob- served by Federal program agencies for all cash ad- vances made under Federal programs including advances to State and local governments, educational institutions, international organizations, and any other public or private organizations. Coverage applies to any program requiring advance Federal payments to finance the recipient organization's activities in carrying out that program whether by contract, grant, contribution, or other form of agreement. (Advance payments on procurement contracts are also subject to the provisions of the Federal Procurement Regulations regarding contract financing which appear at 41 CFR 1-30 and the provisions of the Armed Services Procurement Regulations regarding defense contracting which appear at 32 CFR 163.) Although the regulations of this chapter are not generally applicable to loan programs, the letter-of-credit method described in I TFM 6-2040 should be considered by Federal program agencies for application to loans carrying interest rates that are lower than the Department of the Treasury (Treasury) borrowing rates. These procedures do not apply to Government disbursements made to reimburse an organization for work already performed and financed with the organization's own working capital. However, these procedures do apply to reimbursable grant programs involving nonprofit organizations participating in the single letter-of-credit funding technique as outlined in Treasury Department Circular 1075 Appendix No. 1. Any other specific application of features of these procedures to reimbursement payments will be considered by the Manager, Treasury Programs Branch, Financial Management Service, if requested by a Federal program agency. Section 2015 - AUTHORITY 31 CFR 205, Treasury Department Circular No. 1075 - Fourth Revision Appendix No. 1, establishes the policy regarding advance financing of Federal programs to minimize the impact of such payments on the level of the public debt and related financing costs. The circular also requires the Commissioner, Financial Management Service, to issue necessary implementing procedural requirements. Section 2020 - DEFINITION OF TERMS Recipient Organization - An organization outside the Federal Government (including any State and local government, educational institution, international organization, and any other public and private organization) receiving cash advances under Federal grant and other programs. Primary Recipient Organization - A recipient organization receiving cash advances directly from the Federal Government. Secondary Recipient Organization - A recipient organization receiving cash advances from a prima- ry recipient organization. Direct Treasury Check Method - The method whereby payment is made directly to a recipient or- ganization by Treasury check authorized by the re- sponsible officer of the Federal program agency, charged to the primary Agency Location Code (ALC) of the agency. Letter of Credit - A commitment certified by an authorized official of a Federal program agency, specifying a dollar limit available to a designated payee. A period of time of availability may also be specified. Letter of Credit - Treasury Financial Communications System - A two-way electronic funds transfer system whereby a financial institution on behalf of the recipient organization generates a request for funds message and receives an electronic payment or rejection message. See I TFM 6-2500 for instructions. Letter of Credit - Federal Reserve Bank System. - The system whereby the letters of credit are main- tained and serviced by Federal Reserve banks and branches. Consolidation of Funding to the Same Recipient Organization Under One Letter of Credit - The procedure whereby, within a single accounting entity, the Federal program agency combines all advance funding to the same recipient organization under one letter of credit. In achieving this objective, the Federal program agency will include all advance funding to the recipient organization, including that which ordinarily would not qualify because it does not meet the criteria established for the letter-of-credit method. Checks Paid Technique - The procedure whereby the drawdown on the letter of credit is delayed until the checks issued by the recipient organization for program disbursements are presented to the recipient organization's bank for payment. Delay of Drawdown Technique - The procedure whereby the drawdown on the letter of credit is delayed until after the checks issued by the recipient organization for program disbursements have been forwarded to the payees. Single Letter-of -Credit Technique - The procedure whereby numerous letters of credit issued by different accounting entities within the same Federal department to State agencies, local government agencies, or recipient institutions are replaced by one centrally administered single letter of credit issued to one central organization within that State, local government, or recipient institution. Balance of Federal Cash - The total amount of Federal cash on hand, including all the Federal funds on deposit, imprest funds, and undeposited Treasury checks. Section 2025 - LIMITATION AND TIMING OF CASH ADVANCES Advances to a recipient organization will be limited to the minimum amounts necessary for immediate disbursement needs and will be timed to be in accord only with the actual immediate cash requirements of the recipient organization in carrying out the purpose of an approved program or project. The timing and amount of cash advances will be as close as is administratively feasible to the actual disbursements by the recipient organization for direct program costs and the proportionate share of any allowable indirect costs. Section 2030 - DIRECT TREASURY CHECK METHOD When the annual advance to a recipient organi- zation is less than $120,000 or when the annual advance to a recipient organization aggregates more than $120,000 but there is not an expected continuing relationship between the Federal program agency and the recipient organization for at least one year, the advance will ordinarily be made by Treasury check. Advances by Treasury check will be made only in amounts necessary to meet immediate disbursement needs. Therefore, Federal program agencies will schedule advances made in this manner so the funds are available to the recipient organization only immediately prior to their disbursement by the organization. For example, if disbursements are made by the recipient organization on a monthly, biweekly, or any other regular cycle, and the amounts involved so warrant, the issuance of Treasury checks will be similarly timed. Section 2035 - LETTER OF CREDIT 2035.10 - General. A letter of credit is irrevocable (the equivalent of cash available to the recipient organization) if the recipient organization has obligated funds in good faith thereunder in executing the authorized Federal program in accordance with the grant, contract, or other financing agreement. Agreements will provide for a recipient or- ganization to initiate each drawdown with prime consideration given to the time checks will be issued by the organization in payment of program liabilities. Payment on a letter of credit is by delega- tion of Treasury at the request of the Federal program agency that issued the letter of credit authorizing payment. 2035.20 - Use of Letters of Credit. Use of letters of credit will be covered by a clause in the grant, contract, or other financing agreement whereby the recipient organization commits itself to-- (1) the practice of initiating cash drawdowns only when actually needed for its disbursements; (2) the timely reporting of cash disbursements and balances as required by the Federal program agency, and (3) the imposition of the same standards of timing and amount upon any secondary recipients, including the furnishing of reports of cash disbursements and balances, with the understanding that failure to adhere to these provisions may cause the unobligated portion of the letter of credit to be revoked by the Federal program agency or by Treasury. The financial management system of the recipient organization will provide for ef- fective control over and accountability for all Federal funds, as stated in OMB Circular A-102 revised for State, local governments, and Federally recognized Indian Tribal governments, and OMB Circular A-110 for institutions of higher education, hospitals, and other nonprofit organizations. Federal program agencies are required to consolidate their letter-of -credit authorizations to each recipient organization. This requires that the Federal program agency combine all advance funding to the same recipient organization under one letter of credit, where applicable. To achieve this requirement, the Federal program agency will include all advance funding to the recipient organization, including that which ordinarily would not qualify because it does not meet the criteria established for the letter-of-credit method. Section 2040 - LETTER-OF-CREDIT METHOD 2040.10 - General. If a Federal program agency has, or expects to have a continuing relationship with a recipient organization for at least one year, involving annual advances aggregating at least $120,000, the agency shall use the letter-of-credit method. The letter-of-credit method enables the re- cipient organization to withdraw cash from Treasury concurrently with disbursements and as frequently as such disbursements are made by the recipient organization, and there need be no time lag between the receipt of Federal funds from Treasury and disbursement by the recipient organization. Therefore, recipient organizations do not have to maintain balances of Federal cash other than the small balances necessary to accommodate the minimum limitation on individual drawdowns as provided for in I TFM 6-2050.40d. 2040.20 - Letter-of-Credit Systems. There is one manual letter-of credit system known as the Letter of Credit - Federal Reserve Bank (LOC-FRB) System. The LOC-FRB System is used only for applications, namely the checks paid technique, where the Letter of Credit Treasury Financial Communications System (I TFM 6-2500) does not meet specified requirements. Agency use of the LOC-FRB System for new applications must be approved by Development and Implementation Branch, Financial Management Service. Those agencies using the LOC-FRB System for checks paid activity must contact the above office prior to establishing any new checks-paid letters of credit. There is one electronic funds transfer letter of credit system known as Letter of Credit - Treasury Financial Communications System (LOC-TFCS). The LOC-TFCS is the preferred letter of credit system. The letters of credit will be maintained in the TFCS system at one of the three TFCS Regional Financial Centers (Philadelphia, San Francisco, and Washington). See I TFM 6-2500 for operating guidelines and instructions. 2040.20a - LOC-FRB System - Operational Requirements. - The Federal program agency mill make the award and record the obligation in its accounts. - The Federal program agency will obtain manual specimen signatures of officials of the recipient organization who are (a) designated to authorize signatories and (b) authorized to sign payment vouchers. - The recipient organization will select a commercial bank that agrees to receive payment vouchers, FMS Form 5401: Payment Voucher on Letter of Credit, (Appendix No. 2) &awn on Treasury and will forward such payment vouchers to the applicable Federal Reserve bank or branch. The recipient organization will advise the Federal program agency of the name of the commercial bank, the title and/or number of the bank account, and the location of the applicable Federal Reserve bank or branch. The information relating to the Federal Reserve bank or branch should be obtained from the commercial bank. The commercial bank and the recipient organization must be in the same bank or branch territory of a given Federal Reserve District. If the recipient organization's commercial bank is not a member of the Federal Reserve System, the depositing of letter-of-credit funds must be to the account of a correspondent bank that is a member in that Federal Reserve District so that cash flow will not be adversely affected. - The Federal program agency will forward a certified letter of credit and signature card to Treasury. Treasury will transmit the letter of credit and signature card to the appropriate Federal Reserve bank or branch after verification of the signature of the certifying officer of the Federal program agency. Responsibility for the correctness of the dollar amounts and other information entered on any letter of credit or signature card rests entirely with the certifying officer of the Federal program agency. - The recipient organization will submit a properly completed payment voucher to the commercial bank for transmission to the appropriate Federal Reserve bank or branch as funds are required for immediate disbursement needs. At this time, the commercial bank may credit the account of the recipient organization with the amount of funds being drawn down if agreed to by the bank and the recipient organization. - The Federal Reserve will review the payment voucher for completeness and correctness, verifying the letter-of-credit number, agency location code (ALC, which was formerly referred to as the eight digit agency station symbol), signatures, and that the amount requested is within the available balance of the letter of credit. - The Federal Reserve bank or branch credits the reserve account of the commercial bank, advises the commercial bank of acceptance of the payment voucher, and charges the account of the U.S. Treasury. - The Federal Reserve bank or branch will submit the original copy of the FMS 5401 Treasury with the daily transcript. The duplicate is retained by the Federal Reserve; the triplicate is sent to the Letter of Credit Section, Washington Financial Center (I TFM 6-2050.30e) for forwarding to the appropriate Federal program agency, the quadruplicate is retained by the recipient organization. The Federal program agency will use the triplicate copy to record the expenditure (advance) and to make the appropriate entries in the letter-of-credit control and subsidiary accounts. - At the end of the month, the Federal program agency will report to Treasury, by paid month (date debited by the FRB), based upon the triplicate copy of the FMS Form 5401 received from Treasury, the total of the expenditures relating to letter-of-credit transactions. The totals by paid month must support the amounts reported on the related Statements of Transactions as charges to the appropriate fund account(s) (I TFM 6-2065). 2040.20b - Reconciliation of FMS 5401. - Treasury will develop paid month summary totals for each reporting office (ALC) using the original of the FMS Form 5401 received from FRB'S. The paid month summary totals developed by Treasury will be compared with the paid month summary totals reported by the program agency (ALC). If the program agency and the Treasury paid month summary totals agree, the paid month is considered reconciled. If these totals do not agree, Treasury will produce a FMS Form 6652: Statement of Differences (Appendix No. 3) showing the Treasury paid month summary total, the Federal program agency paid month summary total and the difference between the two summary totals. In addition, Treasury will provide a listing of the items in support of the Treasury paid month summary total (Appendix No. 1). The FMS Form 6652 and the support listing will be sent to the Federal program agency. - Federal program agencies will be responsible for reconciliation of differences shown on the FMS Form 6652. If all or a portion of the difference shown on the FMS Form 6652 was caused by a FMS Form 5401 document(s) not reported or incorrectly reported by the Federal program agency on its SF 224, the adjustment will be included on the next SF 224. All adjustments will be identified as to their correct paid month. If the Federal program agency finds that Treasury has incorrectly charged them with an item (FMS Form 5401) that is not theirs, or has not charged them with an item (FMS Form 5401) that is theirs, Treasury should be contacted at the address shown below: Financial Adjustment Branch Financial Management Service Department of the Treasury 3700 East-West Highway Hyattsville, MD 20782 (Telephone 202-436-6132) - Treasury will accomplish appropriate corrections of Treasury errors in the next reporting month following notification. Section 2045 - FORMS PRESCRIBED FOR PROCEDURES IN THIS CHAPTER - The following forms are prescribed for use under the LOC-FRB System: SF 210 Signature Card for Certifying Officer SF 1194 Authorized Signature Card for Payment Vouchers on Letter of Credit SF 1193 Letter of Credit FMS Form 5401 Payment Voucher on Letter of Credit Overprinting of the Federal program agency name, bureau, ALC, Federal program agency/bureau prefix numbers, or other recurring information on the prescribed forms is permitted. Changes or modifications of prescribed forms require prior approval of the Financial Management Service (See I TFM 1-2000 for specific instructions). Section 2050 - PREPARATION OF FORMS 2050.10 - SF 210: Signature Card for Certifying Officer. The procedures for preparing the SF 210 (Appendix No. 4), for both letter-of-credit and voucher-schedule signature certification, are prescribed in I TFM 4-2040.30e. Under the LOC-FRB System, three original SF 210s (for each official who will sign the letter of credit) and a signature card are forwarded to the address shown in I TFM 6-2050.30e. The LOC-FRB System, authorization to certify letters of credit and signature cards, is deemed to be in effect until official notice of revocation or termination has been received by the Letter of Credit Section, Washington Financial Center, Financial Management Service. Whenever the authorization of a certifying officer is revoked or his/her services have been ter- minated by death, resignation, or otherwise, the written notice (including the effective date) will be signed by the head of the Federal program agency. 2050.20 - SF 1194: Authorized Signature Card for Payment Vouchers on Letter of Credit. SF 1194 (Appendix No. 5) will be used to convey the signature of any individual authorized by the recipient organization to sign payment vouchers under the LOC-FRB System unless an exception is specifically authorized by the Financial Management Service. 2050.20a - Certification by Authorized Certifying Officer. A certification is required on all signature cards submitted to Treasury under the LOC-FRB System. The signature requirements stated in I TFM 6-2050.30c are applicable to certifying officers signing SF 1194's. Federal program agencies will inform recipient organizations to adhere to the following guidelines: - Provide one typed name and related manual signature, as a minimum, on the card if only one signature is required; and to provide two typed names and related manual signatures, as a minimum, if two are required-- - Ensure that the proper box on the card is checked indicating whether the authority to sign payment vouchers or requests for payment is limited to any one signer or to any two signers (as a signer or countersigner); - Cross out any blocks reserved for signatures of individuals authorized to draw on letters of credit that are not used; - Do not submit signatures that have been pasted over, erased, or painted over with correction fluid; - Ensure that the number of signatures on any one signature card, representing the officials who are authorized to draw on letters of credit, is limited to four. Two or more signature cards are required if there are more than four officials authorized to draw on one letter of credit; - Limit the number of officials who are authorized to draw on letters of credit to a practical number; and - Advise the Federal program agency, immediately and in writing, by submitting a new signature card(s) when any of the designated officials are no longer authorized to sign payment vouchers or requests for payment. 2050.20b - Certification by Official of Recipient Organization. The Federal program agency is responsible for certifying that the individual(s) whose signature(s) appears on the SF 1194 has been authorized by the recipient organization to issue payment vouchers or requests for payment. The Federal program agency will require that the SF 1194 be signed in the space provided, by a designated official of the recipient organization who is known to the Federal program agency as having authority to approve, in behalf of the recipient organization, such designated signers. If an individual is both a designated signer of payment vouchers and a designated official of the recipient organization, his or her signature must appear in both of the appropriate spaces provided on the SF 1194. The Federal program agency may also require the recipient organization to furnish documentation that establishes the authority for the designated official to specify the individuals to sign payment vouchers and a specimen of the designated official's signature. Responsibility for signatories rests with the Federal program agency, on the basis of its certification under I TFM 6-2050.20a, whether or not the signature card is signed by an official of the recipient organization or the Federal program agency has obtained documentation of the designating official's authority. 2050.20c - Superseding Signature Cards. The Federal Reserve banks and branches under the LOC-FRB System will accept only the signatures of persons named on the current signature cards. Recipient organizations should be advised to submit a new signature card to the Federal program agency whenever there is a change in the persons authorized to sign payment vouchers or requests for payment. Recipient organizations that have more than one signature card for any letter of credit requiring a change in the persons authorized to sign payment vouchers are required to submit new signature cards for all designated officials authorized to sign payment vouchers. Change in the title or position of a person previously authorized does not require a superseding signature card if the person's authority to sign payment vouchers remains unchanged. The Federal program agency will furnish the Letter of Credit Section, Washington Regional Financial Center, Financial Management Service, with new authorized superseding signature card(s), and will advise the Let- ter of Credit Section, Washington Regional Financial Center to revoke the signature card(s) being replaced. An agency-authorized certifying officer will sign each superseding signature card. 2050.30 - SF 1193: Letter of Credit. SF 1193 (Appendix No. 6) is prescribed for use by Federal program agencies to issue letters of credit under the LOC-FRB System. There should be no limitations, restrictions, or stipulations typed on the original of the SF 1193 submitted to Treasury. The only exception is if the Federal program agency wants to authorize a recipient organization to submit drawdowns in excess of $5,000,000 in which case, a statement to this effect must be typed on the SF 1193. 2050.30a - Letter-of-Credit Number. The following guidelines are prescribed in order to ensure uniformity in numbering the forms: 2050.30a (1) - Alphabetical designations will not be used as part of the basic letter-of-credit number or amendment number. 2050.30a (2) - The first four digits of the letter-of-credit number will be the same as the first four digits of the ALC prescribed by Treasury. The first four digits of the letter-of-credit number and the ALC will designate the following: - First 2 digits (12-xx-xxxx) identify the department or agency; and - Second 2 digits (xx-34-xxxx) identify the bureau or office (if none, use ciphers "O"). The last four digits of the let- ter-of-credit number (xx-xx-5678) identify the letter of credit and are determined by the Federal program agency. These digits may be used for any purpose the Federal program agency feels is most beneficial to its operation, e.g., to identify the program, State, period of availability, etc. However, there can be no duplica- tion of numbers. Also see I TFM 6-2050.30f regarding the waiting period for reusing numbers previously assigned to letters of credit that have been revoked. 2050.30b - Effective Date. The date that the letter of credit, or amendment thereto, is to be effective cannot precede the date of certification. Federal program agencies should allow a minimum of two weeks between the date of certification and the effective date, so the Letter of Credit Section, Washington Regional Financial Center, Financial Management Service, can process the SF 1193 and forward it to the appropriate Federal Reserve bank or branch. 2050.30c - Signature Requirements. SF 1193 will be signed by an authorized certifying officer of the Federal program agency. The Federal program agency official certifying that payments authorized by a letter of credit are correct and proper has the same responsibility for propriety of the payment as for an expenditure by a check &awn on Treasury. 2050.30d - Amending Letters of Credit. An amended letter of credit signed by an authorized certifying officer is required-- - If there is a change in the name of the recipient organization, - If there is a change in the information relative to the commercial bank, - If there is an increase or decrease in the amount authorized, or its related period of availability, and - If the authorization for the recipient organization to draw amounts in excess of $5,000,000 is established or rescinded. Under ordinary circumstances, amendments should not be submitted to increase or decrease the amount authorized by less than $5,000. 2050.30d (1) - A statement will be included on the amending SF 1193 to explain any change other than a change in the amount authorized. 2050.30d (2) - Each amendment to a letter of credit will be clearly identifiable. The SF 1193 contains a space for the amendment number. Amendment numbers should start with "1" for each letter of credit and be numbered consecutively for the duration of the letter of credit. The amendment number is not required on the related payment voucher. 2050.30e - Distribution of Copies. The Federal program agency will send the original and one copy of the SF 1193, with a transmittal letter, to the following address: Letter of Credit Section Washington Regional Financial Center Financial Management Service Department of the Treasury P.O. Box 37214 Washington, DC 20013 (Telephone 202-566-9143) One copy will be sent to the recipient organization, and one copy is retained by the Federal program agency. In forwarding a copy of the letter of credit to a recipient organization, the Federal program agency will allow two weeks for the letter of credit to be received and reviewed by the Letter of Credit Section, Washington Regional Financial Center, Financial Management Service, and forwarded to the appropriate Federal Reserve bank or branch. This is to ensure that the recipient organization does not forward payment vouchers to the Federal Reserve bank for payment before the letter of credit, or any amendment thereto, reaches the Federal Reserve bank. 2050.30f - Revocation of SF 1193. When the balance of the letter of credit has been withdrawn and/or the Federal program agency no longer intends to use the letter of credit for financing the recipient orga- nization, the Federal program agency should request Treasury to revoke the letter of credit. The request should be in the form of either a memorandum or letter signed by a certifying officer and forwarded to the address shown in I TFM 6-2050.30e. Treasury will promptly forward the revocation to the appropriate FRB under a transmittal letter. A letter-of-credit number may be reused starting 18 months after revocation. 2050.40 - FMS Form 5401: Payment Voucher on Letter of Credit. FMS Form 5401 is prescribed for use by recipient organizations for making withdrawals against letters of credit under the LOC-FRB System. - A supply of forms (FMS Form 540 1) should be obtained by the Federal program agency by addressing a memorandum to the Property and Supply Section, Financial Management Service, Department of the Treasury, 3361-L 75th Avenue, Ardmore East Business Center, Landover, MD 20785 - Subject: Requisition of Forms, FMS Form 5401. Cite: (1) the name, address and ALC of the requesting office; (2) the number of forms requested; and (3) the address to which the supply should be sent. Federal program agencies should limit their requisitions to yearly, if possible. - Recipient organizations should be cautioned that if they receive grants or advances in the form of letters of credit from more than one Federal program agency, the forms (FMS Form 5401) furnished by each are not interchangeable. 2050.40a - Signature Requirements. Federal program agencies will instruct the recipient organization that only the designated official(s) whose signature(s) appears on the SF 1194 can sign the FMS Form 5401. The signing of any FMS Form 5401 must be accomplished with the manual signature(s) of the recipient organization's designated official(s). 2050.40b - Government Agency Identification. The block entitled "Agency Location Code" will show the ALC assigned by Treasury to the Federal program agency authorizing the SF 1193. The block entitled "Name and Address of U.S. Agency" will show the name of the Federal program agency and the complete mailing address. Federal program agencies are encouraged to overprint the blocks entitled "Agency Location Code" and "Name and Address of U.S. Agency" before the form stock is forwarded to the recipient organizations. If overprinting is impractical, recipient organizations must insert this information. 2050.40c - Payment Voucher Identifying Number. Each payment voucher (FMS Form 5401) drawn must contain the number of the related letter of credit and a number identifying the particular payment voucher. It is recommended that payment vouchers be numbered consecutively starting with "1". Amendments to the letter of credit, beginning of a new fiscal year, or rejected payment vouchers should not affect the sequential numbering of these documents. The numbering sequence is intended to be solely an aid to the Federal program agency in administering their letters of credit, and the Federal program agency must ensure the correct numbering of the documents. Therefore, the Federal Reserve banks or branches will not be re- sponsible for monitoring the sequence of the numbering of the documents. 2050.40d - Payment Voucher Limitations. Ordinarily, payment vouchers should not be drawn more frequently than daily or for amounts less than $5,000, and in no case, more than $5,000,000 unless so stated on the letter of credit. 2050.40e - Presentation to Bank. Payment vouchers will not be presented to the commercial bank until the recipient organization needs the cash to cover its disbursements. The date presented to the bank will be the "date voucher drawn" on the FMS Form 5401. The commercial bank does not have the authority to reject a payment voucher. The quadruplicate copy of the FMS Form 5401 will be retained by the drawer. The original, duplicate, and triplicate copies will be presented (without snapout separation) to the commercial bank for forwarding to the Federal Reserve bank or branch. 2050.40f - Payment Vouchers Accepted by the Federal Reserve Banks or Branches. The paid triplicate copies of the forms will be forwarded daily to the Letter of Credit Section, Washington Regional Financial Center, Financial Management Service by the Federal Reserve banks and branches for distribution to the Federal program agencies. When a paid photocopy of the original form is received in lieu of the triplicate (which was not received by the Federal Reserve bank or branch), the Federal program agency should remind the recipient organization to forward the triplicate along with the original and duplicate to the commercial bank for transmission to the Federal Reserve bank or branch 2050.40g - Payment Vouchers Rejected by the Federal Reserve Banks or Branches. The Federal Reserve bank or branch will send the original of any rejected payment voucher to the Letter of Credit Section, Washington Regional Financial Center. The original of the payment voucher, stamped "VOID," with the FRB's letter, giving the reason for rejection, upon receipt will be sent by the Letter of Credit Section, Washington Regional Financial Center to the appropriate office of the Fed- eral program agency concerned. Section 2055 - MODIFIED LETTER OF CREDIT TECHNIQUES There are two concepts that are modifications to the letter-of-credit method. The modifications are designed to increase the overall efficiency of the system. 2055.10 - Checks Paid Technique. In specific instances, as determined mutually by Treasury and the Federal program agency, a recipient organization may be requested to authorize its commercial bank to draw on a letter of credit in its behalf when checks issued by the recipient organization (covering disbursements of Federal funds) are presented to the bank for payment. The Federal program agency must ensure that the charges to the recipient organization's bank account and to the account of the U.S. Treasury are effected on the same day. 2055.20 - Delay of Drawdown Technique. In order to take advantage of the float on outstanding checks, Federal program agencies, whenever possible, should arrange for recipient organizations to delay drawdowns on letters of credit until after the checks issued for program disbursements have been forwarded to the payees. Section 2060 - ACCOUNTING AND REPORTING REQUIREMENTS FOR LETTER-OF-CREDIT TRANSACTIONS 2060.10 - General. Letter-of-credit transactions, like other expenditures, will be reported for inclusion in the Treasury's central accounts for the Government's cash operations. If a Federal agency regularly submits monthly reports and no transactions occur during a reporting month, a NO TRANSACTIONS report must be submitted. The words "NO TRANSACTIONS" should be prominently shown in the body of the report. 2060.20 - Federal Program Agencies Under LOC-FRB and LOC-TFCS System. 2060.20a - Prescribed Forms. Agencies for which the Treasury disburses will report payment vouchers, on a paid-month basis, on a separate SF 224: Statement of Transactions. Other agencies will report such transactions on SF 1220: Statement of Transactions according to Appropriations, Funds, and Receipt Accounts and related SF 1219: Statement of Accountability (or other approved form). However, agencies using LOC-TFCS must report their transactions on SF-224. 2060.20b - Preparation Requirements. The following requirements apply to reporting letter of credit transactions: - Agencies rendering the SF 224 will submit a separate monthly report confined to payment voucher transactions. Special letter-of-credit ALC's will be assigned by the Financial Management Service for this purpose. (See I TFM 2-3320 for establishment of ALC's.) Classification by appropriation and fund account symbol will be shown in Section I of SF 224 in the usual manner. The total of payment vouchers classified in Section I will be shown under Item 1 in Section II according to the month paid (date debited) by the Federal Reserve bank, and paid date on outgoing TFCS message. Agencies doing their own disbursing will include the payment vouchers in the regular monthly statements of transactions and statements of accountability on the paid-month basis (date debited) by the Federal Reserve bank. The transactions will be shown on the SF 1219 (or other approved forms) as "Gross Disbursements" on line 4.1 and correspondingly on line 2.3 as "Other Transactions." The SF 1220 (or other ap- proved form) will be prepared in the usual manner. 2060.20c - Due Date for Reports. 2060.20c (1) - To provide sufficient time for Federal program agencies to include all payment vouchers paid during the reporting month, additional time will be allowed for submission of the special SF 224 report on letter-of-credit transactions. Such SF 224 will be released by the agency in order to be received by the Financial Management Service not later than noon of the eighth working day for the ALC's with the fifth and sixth digit XX-XX-97XX for LOC-FRB, and for ALC's with the fifth and sixth digit (XX-XX-87XX) for LOC-TFCS system following the reporting month. Agencies should regulate their internal accounting systems to ensure that each SF 224 report includes all the payment vouchers charged to the Treasury's account during the reporting month. Since additional time is provided for the preparation of these reports on letter-of-credit transactions, Federal program agencies should not have cut-off times that are earlier than necessary for the inclusion of payment transactions in these reports. Treasury may request a supplemental monthly report if the regular monthly report is determined to be deficient. 2060.20c (2) - Every effort should be made to include all payments accomplished during the month of September in the SF 224, which is due in the Financial Management Service not later than the time specified above. Based upon analysis of the September statement of transactions, agencies with significant amounts of unreported payments will be contacted to obtain a September supplemental report for these items. If requested by Treasury, Federal program agencies will submit a final statement of transactions to report appropriate adjustments based on Treasury's reconcilement of payments under letters of credit. (Agencies will be advised of the due date for final re- ports by TFM bulletin establishing the deadline for finalizing receipt and outlay data.) To facilitate year-end accounting and reporting, agencies should include all adjustments possible in their SF 224 reports submitted through August. 2060.20c (3) - Agencies not reporting letter-of -credit transactions on the SF 224 will submit their statements of transactions in accordance with the regular requirements. 2060.20d - Reconciliation of FMS Forms 5401. Treasury will compare payment vouchers reported on a paid month basis by the Federal program agencies against the payment vouchers charged to the account of the Treasury on a paid-month basis. The Treasury will advise the Federal program agency as indicated in I TFM 6-2040.20a. Section 2065 - INSTRUCTIONS TO SECONDARY RECIPIENTS Advances made by primary recipient organizations to secondary recipients shall conform substantially to the same standards of timing and amount as apply to advances by Federal program agencies to primary recipient organizations. Federal program agencies will require primary recipient organizations to develop procedures whereby secondary recipient organizations can obtain funds from the primary recipient organization as needed for disbursement. Section 2070 - TERMINATION OF ADVANCE METHODS OF FINANCING GRANT AND OTHER PROGRAMS 2070.10 - Reimbursement Method. When a recipient organization receiving cash advances by a letter of credit or by direct Treasury check has demonstrated to a Federal program agency an unwillingness or inability to establish procedures that will minimize the time elapsing between cash advances and the disbursement thereof, the Federal program agency, unless prohibited by the statute(s) governing the program(s) in question, will terminate advance financing and will require the recipient organization to finance its operations with its own working capital, and payments to the recipient organization will be made by the direct Treasury check method to reimburse it for actual cash disbursements. Federal program agencies will process such reimbursements expeditiously so as to minimize the time elapsing between disbursement by and payment to the re- cipient organization. 2070.20 - Working Capital Advance Method. When the reimbursement method described in I TFM 6-2075.10 is not feasible, arrangements may be made whereby the operations of the recipient organization are financed on a working capital advance basis. On this basis, funds are advanced to the recipient organization to cover its estimated disbursement needs for a given ini- tial period. The period of time, "a given initial period," is to be decided by the Federal program agency but normally should not exceed a 30 day requirement. Thereafter, payments are made to the recipient organization for the amount of its actual cash disbursements. The amount of the initial advance will be geared to the reimbursement cycle so that, after the initial period, the payments are approximately equal to the average amount of the recipient organization's un- reimbursed program payments. Section 2075 - RESPONSIBILITIES OF FEDERAL PROGRAM AGENCIES Federal program agencies making advances should-- (a) identify the programs advancing Federal funds and specify the method of advance financing that will be used; (b) assign responsibility to a designated official to assure agency-wide implementation and to provide a focal point for liaison with the Development and Implementation Branch, Financial Management Service, and (c) issue the necessary procedures. 2075.10 - Federal Program Agency Procedures. Instructions developed by Federal program agencies covering advance financing procedures should include internal operating procedures and procedures for the use of the recipient organization. Federal program agencies are encouraged to reproduce any information from the Treasury Financial Manual that would be considered appropriate for the use of either the Federal program agency or the recipient organization. 2075.10a - Internal Operating Procedures. These procedures should include, but are not limited to, provisions for the following: - The correct preparation and distribution of the prescribed forms; - The monitoring of the recipient organization's drawdowns coupled with reviews of the other financial practices to ensure against excessive withdrawals of Federal funds; and - The implementation of the necessary remedial measures in the event of excessive withdrawals of cash. 2075.10b - Procedures for the Use of the Recipient Organization. The recipient organization must be advised in writing of Federal program agency requirements in connection with advance funding. The requirements and related procedural instructions should cover, but are not limited to, the following: - The selection of a commercial bank for receiving payments, if appropriate; - The correct preparation and distribution of the various prescribed forms; and - The requirement that advances of Federal funds be limited to the minimum amounts necessary for immediate disbursement needs. 2075.10c - Approval of Federal Program Agency Procedures. In order to obtain uniformity in practices, Federal program agency procedures covering advance financing, whether by letter of credit or direct Treasury check, will be reviewed and approved by the Manager, Development and Implementation Branch, Financial Management Service, on behalf of the Commissioner. The Treasury Programs Branch will be consulted during the development of the Federal program agency advance financing system. Initial agency regulations, modifications of systems, and questions regarding procedural requirements should be submitted to: Development and Implementation Branch Financial Management Service Department of the Treasury Liberty Center, Rm. 325 Washington, DC 20227 (Telephone 202-287-0455) 2075.20 - Review of Advances. Periodically, but not less frequently than each calendar quarter, the Federal program agency will review a recipient organization's use of funds advanced. The same reports required to comply with 2 GAO G10.07, OMB Circular A-102 revised, and OMB Circular A-110 may be used as the review basis provided the Federal program agency is also able to determine-- (a) the difference, if any, between the total amount of funds drawn on the letter of credit and/or funds advanced by direct Treasury check, and disbursements related to the Federal programs; (b) that cash is being withdrawn by payment vouchers and/or advanced by direct Treasury check only in accordance with program disbursement needs; and (c) the available balance of each letter of credit. The reports should be reviewed for agreement with Federal program agency ac- counts and reasonableness of cash balances on hand and the timing of drawdowns by payment voucher and or advances by direct Treasury check. The Federal program agency should also inquire into any other matters that might warrant action to change the terms of a letter of credit, conditions of drawdowns, or advances by direct Treasury check, etc. 2075.30 - Excessive Federal Funds. Federal funds should be promptly refunded to the Federal program agency and redrawn when needed if the funds are erroneously drawn in excess of immediate disbursement needs. The only exceptions to the requirement for prompt refunding are when the funds involved-- - will be disbursed by the recipient or- ganization within seven calendar days, or - are less than $10,000 and will be disbursed within 30 calendar days. These exceptions to the requirement for prompt refunding should not be construed as approval by Treasury for a recipient organization to maintain excessive funds; they are applicable only to excessive amounts of funds that are erroneously drawn. 2075.30a - Interest Earned on Federal Funds. Any interest income earned by a recipient organization on Federal funds will be promptly refunded to the Federal program agency unless specifically prohibited by law. 2075.30b - Requirements for Handling Refunds. Federal program agencies should deposit that portion of the amount refunded that represents the initial advance to the appropriation or fund account initially charged with the advance. The portion that represents interest income should be deposited to receipt account "1435 General Fund Proprietary" interest collections, not otherwise classified." These transactions will be reported on the Federal program agency's regular statement of transactions. Section 2080 - WAIVERS Requests for waivers to specific provisions of these procedural requirements will be considered if presented in writing to the Manager, Development and Implementation Branch, Financial Management Service. Section 2095 - INQUIRIES Inquiries concerning this chapter should be directed to: Development and Implementation Branch Financial Management Service Department of the Treasury Liberty Center, Room 325 401 14th Street, SW. Washington, DC 20227 (Telephone 202-287-0455) APPENDICES LISTING FORMS AND LISTS PRESCRIBED FOR LOC-FRB SYSTEM App. No. Form Title 1 Treasury Department Circular No. 1075 2 FMS Form 5401 Payment Voucher on Letter of Credit 3 FMS Form 6652 Statement of Differences - Disbursing Office Transactions Letters of Credit Payment Vouchers for Month of__________ 19_____ 4 SF 210 Signature/Designation Card for Certifying Officer 5 SF 1194 Authorized Signature Card for Payment Vouchers on Letter of Credit 6 SF 1193 Letter of Credit Explanation of Certain Information to be Included on the SF 1193, Letter of Credit REGULATIONS GOVERNING WITHDRAWAL OF CASH FROM THE TREASURY FOR ADVANCES UNDER FEDERAL GRANT AND OTHER PROGRAMS 1977 Department of the Treasury Department Circular No. 1075 Washington, DC 20226 (Fourth Revision) Fiscal Service Financial Management Service TO HEADS OF GOVERNMENT DEPARTMENT'S AND AGENCIES AND OTHERS CON- CERNED: The following regulations were published in the Federal Register on December 14, 1977. TITLE 31 - MONEY AND FINANCE: TREASURY CHAPTER II - FISCAL SERVICE, DEPARTMENT OF THE TREASURY (Department Circular No. 1075 (Fourth Revision)) PART 205 - WITHDRAWAL OF CASH FROM THE TREASURY FOR ADVANCES UNDER FEDERAL GRANT AND OTHER PROGRAMS Part 205, Chapter II of Title 31 of the Code of Federal Regulations (Treasury Department Circular No. 1075 (fourth) Revision)) is amended and revised to read as follows: Part 205 - WITHDRAWAL OF CASH FROM THE TREASURY FOR ADVANCES UNDER FEDERAL GRANT AND OTHER PROGRAMS Section 205.1 Purpose. 205.2 Scope of regulations. 205.3 Definitions. 205.4 General regulations. 205.5 Irrevocability of the letter of credit. 205.6 Contract or grant provisions. 205.7 Termination of advance methods of financing grant programs. 205.8 Responsibilities of Federal program agencies. 205.9 Implementing instructions. 205.10 Waivers. AUTHORITY: 5 U.S.C. 301; sec. 203, 82 Stat. 1101 (42 U.S.C. 4213). SOURCE: Department Circular 1075, Fourth Revision, FR 42 62927, December 14, 1977. Section 205.1 Purpose. This part prescribes the regulations governing advances to recipient organizations for financing operations under Federal grant and other programs. Section 205.2 Scope of regulations. (a) The regulations in this part apply to any Federal program requiring advances to finance the recipient organization's activities in carrying out the program, whether by contract, grant, contribution, or other form of agreement. (Advance payments on procurement contracts are also subject to the provisions of the Federal Procurement Regulations regarding contract financing which appear at 41 CFR 1-30 and the provisions of the Armed Services Procurement Regulations regarding defense contracting which appear at 32 CFR 163.) The regulations in this part are not generally applicable to loan programs. However, the letter-of-credit method should be considered by Federal program agencies for application to loans carrying interest rates which are lower than Treasury borrowing rates. (b) These regulations are not intended to apply to Government disbursements made to reimburse an organization for work already performed and financed with the organization's own working capital. However, these regulations do apply to reimbursable grant programs involving nonprofit organizations participating in the single letter-of-credit funding technique. Any other specific application of features of these regulations to reimbursement payments will be considered by the Department of the Treasury if requested by a Federal program agency. Section 205.3 Definitions. For the purpose of this part: (a) Recipient organization means an organization outside the Federal Government (including any State and local government, educational institution, international organization, and any other public and private organization) receiving cash advances under Federal grant and other programs. (b) Primary recipient organization means a recipient organization receiving cash advances directly from the Federal Government. (c) Secondary recipient organization means a recipient organization receiving cash advances from a primary recipient organization. (d) Direct Treasury check method means the method whereby payment is made directly to a recipient organization by Treasury check authorized by the responsible officer of the Federal program agency. (e) Letter of Credit - Treasury Regional Financial Center System means the system whereby the letters of credit are maintained and serviced by Treasury regional financial centers. (f) Letter of Credit - Federal Reserve Bank System means the system whereby the letters of credit are maintained and serviced by Federal Reserve banks and branches. (g) Checks paid technique means the procedure whereby the drawdown on the letter of credit is delayed until the checks issued for program disbursements are presented to the recipient organization's bank for payment. (h) Delay of drawdown technique means the procedure whereby the drawdown on the letter of credit is delayed until after the checks issued for program disbursements have been forwarded to the payees. (i) Consolidation of funding to the same recipient organization under one letter of credit means the procedure whereby, within a single accounting entity, the Federal program agency combines all advance funding to the same recipient organization under one letter of credit. In achieving this objective, the Federal program agency shall include all advance funding to the recipient organization including that which ordinarily would not qualify because it does not meet the criteria established, for the letter-of-credit method. (j) Single letter-of-credit technique means the procedure whereby numerous letters of credit issued by different accounting entities within the same Federal department to State agencies, local government agencies, or recipient institutions are replaced by one centrally administered single letter of credit issued to one central organization within that State, local government, or recipient institution. (k) Working capital advance basis means the procedure whereby funds are advanced to the recipient organization to cover its estimated disbursement needs for a given initial period. Thereafter, the recipient organization would be reimbursed for the amount of its actual cash disbursements. The amount of the initial advance shall be geared to the reimbursement cycle so that after the initial period the payments are approximately equal to the average amount of the recipient organization's unreimbursed program payments. Section 205.4 General regulations. (a) Cash advances to a recipient organization shall be limited to the minimum amounts needed and shall be timed to be in accord only with the actual, immediate cash requirements of the recipient organization in carrying out the purpose of the approved program or project. The timing and amount of cash advances shall be as close as is administratively feasible to the actual disbursements by the recipient organization for direct program costs and the proportionate share of any allowable indirect costs. (b) If a Federal program agency has, or expects to have, a continuing relationship with a recipient organization for at least one year, involving annual advances aggregating at least $ 120,000, the agency shall use the letter-of-credit method. Letters of credit will be established with the Treasury regional financial centers (Letter of Credit - Treasury Regional Financial Center System) or the Federal Reserve banks and branches (Letter of Credit - Federal Reserve Bank System) as determined by the Commissioner, Financial Management Service, or his designee. (c) When annual advances to a recipient organization aggregate less than $120,000 or there is not a continuing relationship for at least one year, the cash advances shall ordinarily be made by the direct Treasury check method. Such cash advances shall be made only in amounts necessary to meet current disbursement needs and shall be scheduled so that the funds are available to the recipient organization only immediately prior to their disbursement by the organization. (d) Each Federal program agency shall work toward the objective of the consolidation of funding to the same recipient organization under one letter of credit. Also, the single letter-of -credit, checks paid, and the delay of drawdown techniques of withdrawing funds under the letter-of-credit method shall be employed wherever feasible under the direction and approval of the Department of the Treasury. (e) Cash advances made by primary recipient organizations to secondary recipient organizations shall conform substantially to the same standards of timing and amount as apply to cash advances by Federal program agencies to primary recipient organizations. Federal program agencies shall require primary recipient organizations to develop procedures whereby secondary recipient organizations can obtain funds from the primary recipient organization as needed for disbursement. Section 205.5 Irrevocability of the letter of credit. A letter of credit is irrevocable (the equivalent of cash available to the recipient organization) to the extent the recipient organization has obligated funds in good faith thereunder in executing the authorized Federal program in accordance with the grant, contract, or other agreement. Section 205.6 Contract or grant provisions. Use of letters of credit shall be covered by a clause in the grant, contract, or other financing agreement whereby the recipient organization commits itself to (a) initiating cash drawdowns only when actually needed for its disbursements, (b) timely reporting of cash disbursements and balances as required by the Federal program agency, and (c) the imposition of the same standards of timing and amount upon any secondary recipient organizations including the furnishing of reports of cash disbursements and balances, with the understanding that failure to adhere to these provisions may cause the unobligated portion of the letter of credit to be revoked by the Federal program agency or by the Department of the Treasury. The financial management system of the recipient organization shall provide for effective control over and accountability for all Federal funds as stated in OMB Circular A-102 revised for State and local governments and OMB Circular A-110 for institutions of higher education, hospitals, and other nonprofit organizations. Section 205.7 Termination of advance methods of financing grant programs. When a recipient organization receiving cash advances by a letter of credit or by direct Treasury check method has demonstrated to a Federal program agency an unwillingness or inability to establish procedures that will minimize the time elapsing between cash advances and the disbursement thereof, the Federal program agency, unless prohibited by the statutes governing the program(s) in question, shall terminate advance financing and shall require the recipient organization to finance its operations with its own working capital, and payments to the recipient organization shall be made by direct Treasury check method to reimburse it for actual cash disbursements. In those cases in which the reimbursement method is not feasible, arrangements may be made whereby the operations of the recipient organizations are financed on a working capital advance basis. Section 205.8 Responsibilities of Federal program agencies. Regardless of the particular method used to advance funds, the Federal program agency shall be responsible for (a) making such reviews of the financial practices of recipient organizations, both primary and secondary, as are necessary to ensure that the provisions of this part are being complied with, and (b) instituting such remedial measures as may be necessary in the event that a recipient organization demonstrates its unwillingness or inability to comply with these provisions. Federal program agencies shall formulate procedural instructions which specify the methods employed to carry out these responsibilities and shall forward copies of such instructions to the Commissioner, Financial Management Service, or his designee for approval. Also, each Federal program agency shall furnish the Department of the Treasury such periodic reports showing cash balances in the hands of the recipient organizations and results of reviews of the financial practices of recipient organizations as are required by the Commissioner, Financial Management Service, or his designee. Section 205.9 Implementing instructions. The Commissioner, Financial Management Service, will issue implementing instructions for the regulations established by this part in Volume I of the Treasury Financial Manual. Section 205.10 Waivers. Any waivers of the provisions of this part previously granted to Federal program agencies are hereby revoked. Requests for waivers for specific provisions of this part shall be presented in writing to the Commissioner, Financial Management Service, or his designee. The Department of the Treasury has determined that this document does not contain a major proposal requiring preparation of an Economic Impact Statement under Executive Orders 11821 and 11949 and OMB Circular A-107. Effective date. These regulations are effective December 14, 1977. Dated: October 14, 1977. /s/Paul Taylor Acting Fiscal Assistant Secretary [GRAPHIC] FMS FORM 5401 [GRAPHIC] FMS FORM 6652 [GRAPHIC] LETTER OF CREDIT PAYMENT VOUCHERS FOR MONTHS OF _____ 19__ [GRAPHIC] SF 210 [GRAPHIC] SF 1194 [GRAPHIC] SF1193 APPENDIX NO. 6 EXPLANATION OF CERTAIN INFORMATION TO BE INCLUDED ON THE SF 1193, LETTER OF CREDIT EFFECTIVE DATE. This date should not be the same as, or in advance of, the certified date. The effective date should be two weeks subsequent to the date certified to allow for mail delivery to Treasury and then to the Federal Reserve bank or branch. TO THE FEDERAL RESERVE BANK, and BRANCH BANK AT. The name of the Federal Reserve bank or branch must be inserted in the appropriate box. All that is necessary is the name of the city and state in which the Federal Reserve bank or branch is located. AMOUNT AUTHORIZED. The total dollar amount of the current authorization must appear in this box on every letter of credit, and amendment thereto, submitted to Treasury. One of the four blocks, which indicate a time limitation on the amount authorized, must be checked. If the fourth block is checked a time limitation must be typed in the space provided such as: EACH FISCAL YEAR, EACH CALENDAR YEAR, or a date (month, day and year) when the authorization will terminate. PRIOR AUTHORIZATION. A dollar amount must appear in this box on ever amending letter of credit. Where the purpose, or one of the purposes, of the current amendment is to increase or decrease the amount authorized, the PRIOR AUTHORIZATION will be the AMOUNT AUTHORIZED on the initial letter of credit (if the current amendment is number 1) or on the previous amendment (if the current amendment is number 2 or subsequent). THIS CHANGE. A dollar amount must appear in this box to either increase or decrease the authorization if the purpose, or one of the purposes, of the current amendment is to change the amount authorized. One of the two blocks, relating to the availability of funds, must be checked. GENERAL INFORMATION The Federal program agency, in filling out the SF 1193, must type the required information.